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A man walks by graffiti, reading 'troika out' in Greek, in the old city of Nicosia, Cyprus, today. The Cypriot bailout plan, which was backed by the so-called 'troika' of the European Union, the International Monetary Fund, and the European Central Bank, has been met with fury in Cyprus and has sent jitters across financial markets.

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The tiny divided sun-dappled Mediterranean island of Cyprus rarely rides above the radar in European thinking – but is now suddenly raising a five-alarm panic in the European Union, just as financial crisis talk there was starting to abate.

Cyprus desperately needs a 10 billion euro ($13 billion) bailout, and to do so the EU has engineered a plan, now being voted on by the Cypriot parliament, to guarantee an EU loan with – and here is the kicker – money secured from the banking accounts of private depositors.

Accounts with more than 100,000 euros ($130,000) would be taxed 9.9 percent; those under that marker would be taxed at 6.7 percent. The idea is to raise 5.8 billion euro ($7.5 billion) to ensure against a catastrophic default.

Since the EU in Brussels must approve the plan, and since Germany is on board, this is a fateful example that is sending a chill around the continent, particularly in nations like Spain and Italy that have troubled banks that have been unable to climb out of the pit of debt and exposure.

Whether one calls this measure a tax, a levy, a “dip” into bank accounts, or a seizure of funds to avert a national disaster, ordinary Europeans interpret the plan as a major Rubicon that has been crossed: Their private accounts can be invaded by the public sector.

“The damage is done,” Louise Cooper, who heads the financial research firm CooperCity in London, told the Associated Press. “Europeans now know that their savings could be used to bail out banks.”

Though some dispute that the decision entails a realistic threat to American and European bank accounts. In a statement sent to EU correspondents, Andriy Bodnaruk, an assistant professor of finance at the University of Notre Dame Mendoza College of Business, wrote that “While Cyprus' proposed tax on deposit holders sets a precedent, there is little reason for depositors in Europe or the US to lose sleep."

"...It is highly unlikely (if not improbable) that such policy could ever be forced on depositors in any other EU country, as it would be politically suicidal. Cyprus is a different animal as it is effectively an off-shore area within Europe," he wrote.

The president of Cyprus, Nicos Anastasiades, told his nation on Sunday that he supported the plan as “the least painful option,” saying that, “Cyprus is in a tragic situation … and I bear the political cost for this, in order to limit as much as possible the consequences for the economy and for our fellow Cypriots.”

Michael Steininger wrote yesterday in The Christian Science Monitor that: “…for the first time, at the insistence of the German government, private account holders were being asked to shoulder a part of that [Cyprus] bailout, around 5.8 billion euros ($7.5 billion), through a special levy on their savings."

“The German taxpayer is willing to help Cyprus,” says Michael Fuchs, a member of Parliament for Chancellor Angela Merkel’s Christian Democrats. “But the Cypriots have to help themselves and pay a tax on their deposits.”

With large Russian offshore accounts in Cyprus, President Vladimir Putin in Moscow called the new tax “dangerous.”

At the insistence of both the E.U. and the IMF, Cyprus would only receive a bailout if as much as $6 billion of the money could be recouped from bank depositors. That solution was aimed primarily at the Russians and other wealthy depositors, with more than $130,000 in their accounts. But under the terms of the agreement finalized on Friday night, all depositors will take a hit. A one-time levy of 9.9% will be charged on deposits over $130,000, and accounts with less will be charged 6.75%.

A new plan being voted on today in Cyprus would exempt depositors with less than 20,000 euro ($26,000) in their accounts.

Since the advent of what has been called the “eurocrisis” several years ago – which has caused a number of governments to fall and occasionally spun the global economy downward – Europeans have become adroit at halting panic and crisis just as it seems ready to bring a full-scale meltdown.

The crisis was originally sparked by public debt and bad accounting in Greece. But it spread across Europe – most prominently in Ireland, Portugal, Italy, and Spain – as bond markets attacked what appeared to be weakness in those economies, due to their inability to devaluate under the single currency.

But the European Central Bank showed this summer and fall that it would go so far as to sidestep its own rules and charter to protect the euro by lending trillions to troubled banks.

Still, as the Associated Press put it in a report today:

…Down the road, the Cyprus precedent, even if quickly reversed, could come back to haunt eurozone policy makers by making depositors less sure about the safety of their money in case of trouble. It could also complicate creation of an EU-wide system of bank deposit insurance, part of long-term efforts to create a more robust financial system and prevent future crises.